A reserve price can be approached from the buyer’s or seller’s perspective and is often used in negotiations for various products, including at auctions. It can also be applied to a worker’s reservation wage or a buyer’s maximum price for a product.
Sometimes called the starting point, a reserve price is a concept that is actually approached from two different perspectives. One approach has to do with the price a buyer is willing to pay in exchange for a given good or service. The second approach has to do with the price that a seller is willing to accept in exchange for a product. Both approaches often form the basis for negotiation over the final sales price, a process that is common in many countries around the world for everything from real estate to fresh produce.
When the reserve price is focused on the buyer’s wishes, it reflects the maximum amount the buyer is willing to pay to purchase the product. There are several factors that influence this price, such as the buyer’s current financial circumstances. This maximum price may also be determined based on the availability of similar products, or on the buyer’s personal evaluation of the satisfaction he or she will ultimately receive from the purchase.
The price of the reservation can also be approached from the seller’s perspective. When this is the case, the price is often determined based on the amount of resources the seller committed to creating and manufacturing the product. Ideally, the seller will want to make a certain level of profit to cover all expenses and have some extra profit that makes the whole procedure worth the time and effort. This minimum acceptable price is sometimes non-negotiable, although some dealers allow haggling with potential buyers, as long as the final sale price is enough to cover expenses and perhaps a little more.
Many auctions make use of a reserve price. Essentially, the price sets the starting point at which offers from potential buyers will be accepted. Any buyer who is not willing to pay this minimum price does not bid on the item. Buyers who are still interested in the auction will continue to bid, until each one reaches their maximum bid, or reserve price. The winning bidder does not necessarily have to pay the maximum price he or she has personally set for the auction; all that is necessary is to exceed the reserve prices observed by all other bidders.
The broad concept of the reserve price is also found in other applications. For example, a worker looking for a job has an idea of the least amount of wages or salary that needs to be generated for the job to be worthwhile. This would be known as a reservation wage. Conversely, a smart shopper always wants to save money on purchases, thereby stretching disposable income to provide more satisfaction. Therefore, the buyer will establish a maximum amount that he or she is willing to pay for a certain product, thus establishing a reserve or starting price.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
